I penned an article in August 2007 [What's the probability of a loan appraisal "coming in short"?] that was posted to Appraisal Scoop in which I described a probability variable I termed the Loan Officer Coefficient. The Loan Office Coefficient is the variable which acts upon an appraiser's ability to accurately, and independently, estimate the market value of a property. Here is an excerpt from that article:
Loan Officer's DCL* (*Desire to Close the Loan) = Appraiser's(monthly bills + spending money) x Remainder of Life / Desire to not declare bankruptcy
Obviously, using this formula each side must balance. The fewer toys the appraiser has, or the more outside income the appraiser has, the better the appraiser will tolerate a high loan officer coefficient. The only way to lower the loan officer coefficient is to make loan officers compensation fee or salary based or make them subject to mandatory licensing.
I think it was apparent to all of us who work at the street level what was happening one year ago. High Loan Officer Coefficients were making it difficult for all of us to perform at our peak abilities because we were at the height of the Subprime Lending Boom. Mortgage brokers were as successful at originating mortgages as newbie stockbrokers were at picking stocks in the late 1990's. For some of us, it was hard to say no because there was so much business that the thought of "cutting a value" meant cutting off our very life flow of income. How ironic it is that the vast majority of those charlatans have now moved on and those of us still in business have the cold pleasure of seeing what they left behind.
How many times in the last few weeks have we heard on the TV or the radio, or read in the newspaper, someone plaintively asking, "How did we get in this mess?" And what a joke it is to watch the talking heads on TV News and the stuffed shirts on Capitol Hill make such a big deal out of it. Well, it is a big deal. And, it's going to be a long time and very expensive to dig our way out of it. A good way to ensure that it doesn't happen again is to enact legislation that will fulfill what I described to be the only way to lower the Loan Officer Coefficient: mandatory loan originator licensing.
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I do not pretend to think that licensing of loan originators will cause natural born liars to suddenly become purveyors of truth. Nor do I think it will eliminate all instances of lender pressure or coercion of appraisers. What it will do is to hold someone accountable. It will put a face on a problem. Too many of these originators simply crawled back into the detritus from which they came, leaving homeowners - some innocent, some not so innocent - to deal with the ravages of a subprime or Alt-A mortgage that too quickly blossomed into a flower of death they could not control. Had there been a license with a name and an address, it just might be possible to call someone to account for what had been done.
Sen. Chris Dodd (D-CT) had the notion a few months back that an appraiser surety bond would fix what ailed the mortgage industry. Right. More regulation or legislation on a profession that already has a code of ethics, a dedicated congressional subcommittee, mandatory E & O insurance, mandatory licensing, mandatory continuing education, and a uniform report. How much more control can you possibly have over a single profession than that? Wait, is that banjo music I hear?
By contrast, how are mortgage originators controlled or regulated? Take your time. Yeah, I can't think of any ways, either. If every single, individual mortgage originator was required to be state-licensed, required to take a certain number of continuing education hours per year, had to take USPAP or a USPAP-similar curriculum, and actually sign something other than "I certify this to be a true and accurate copy," then we might be approaching accountability. Even further, there should be no exemptions for originators who work for FDIC-regulated banks or for firms who are FHA approved. Period. Everybody is licensed, everybody is accountable. All pigs fed and ready to fly.
For the past year, I have been sending letters, emails, and making calls to Sen. Richard Shelby (R-AL), who is the ranking Republican in the Senate Banking Committee. (see FHFRRA of 2008). I have been encouraging Sen. Shelby to introduce legislation for mandatory lender licensing. So far, I have been ignored by my very own Senator in this endeavor. I have gotten a better response from Senators from other states. It may be because Sen. Shelby owns a title company and is hoping that he will become richer in the near future if the HVCC takes off and his company can become an AMC. But that is a story for another day.
The point is, our legislators have no earthly idea what is happening on the street. They sit on their fannies all day, bickering like children over their grandiose schemes in terms of billions of dollars, while many of us hope to make our next mortgage payment. Why won't they listen? Why won't they ask the people who are working the machinery which part is broken?
When the dust settles and we can see more clearly, and probably after we have a new president, maybe we can get some legislators to take up this battle. In my humble opinion, individual lender licensing will go a long way toward making the loan process transparent easing lender pressure and coercion, and adding a layer of accountability that has been nonexistent for too long.
Author: Greg Hartley, SRA - Blue Moon Appraisals, Birmingham, AL - email - Phone: 205 823-5150
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